DQ 2:

The following relate to auditors independence:

1. Why is independence so essential for auditors?
2. Compare the importance of independence of CPAs with that of other professionals, such as attorneys.
3. Explain the difference between independence in appearance and of mind.
4. Assume that a partner of a CPA firm owns two shares of stock of a large audit client on which he serves as the engagement partner. The ownership is an insignificant part of his total wealth.

1. Has he violated the Code of Professional Conduct?
2. Explain whether the ownership is likely to affect the partners independence of mind.
3. Explain the reason for the strict requirements about stock ownership in the rules of conduct.

5. Discuss how each of the following could affect independence of mind and independence in appearance:

1. Owning stock in a client company
2. Having bookkeeping services for an audit client performed by the same person who does the audit
3. Having a spouse who is the chief financial officer of a client company
4. Having the annual audit performed by the same CPA firms for 10 years in a row
5. Having management select the CPA firm
6. Recommending adjusting entries to the clients financial statements and preparing financial statements, including footnotes, for the client.
7. Providing valuation services on complex financial instruments for an audit client performed by individuals in a department that is separate from the audit department